Finland is a rare stable Aaa-rated credit in the eurozone, according to the ratings agency, which placed Germany, the Netherlands and Luxembourg on a negative outlook.
Possible contingent liabilities from rescuing Spain and/or Italy loomed large. Read more
That’s Germany at the bottom, Italy in the middle and Spain going basically flat from 3-year out (click to enlarge):
That’s one unhappy Minister-President of Bavaria venting on Tuesday. Read more
Admittedly the words Karlsruhe and German and constitutional court lack any sex factor, but the relative lack of attention the case is getting seems a bit odd to us given what’s at stake. We’d expect the markets to be just a bit more het up about it.
So would Martin Lueck, an economist at UBS, who argues in his latest note that too many investors don’t understand the situation and are just assuming that the court will yield to the markets’/politicians’ pressure and let ratification of the ESM and fiscal compact pass: Read more
Nomura’s Richard Koo has written a fascinating account of his meeting with “a number of influential politicians, academics, and senior government officials” in Berlin last week.
First, he heard that some Germans don’t think Greece should have ever been admitted to the eurozone. One of them even said Greece was not really a modern nation-state, Koo writes. Another politician/academic/official was more positive, saying both Greece and Ireland had become more competitive of late, as wages and prices had fallen. Read more
Click through the pic to the full IMF report on country x to find out. (p. 17)
Calculating the benefit to Germany from eurozone membership has been attempted numerous times, and proven rather hard to pin down. But what about the opposite? The costs to the country of a euro break-up? Given the importance of Germany’s support to the survival of the euro project, this is a big question, with a tonne of political baggage attached.
The German ministry of finance has done just such an analysis, according to Der Spiegel, and found that the costs of such a break-up and the re-introduction of the D-Mark would lead to an up to 10 per cent fall in GDP in the first year. Unemployment would surge to its record high of over 5m. Read more
We take our headline from Sharon Bowles MEP.
The Member of the European Parliament was talking to Public Service Europe about this ominous move in transparent sovereign accounting: Read more
It’s an understatement to say that the last couple of years haven’t been great for Greco-Germanic relations.
On Friday night, however, the eurozone’s strongest and weakest nation get to fight it out – on the football pitch. They are through to the quarter-finals of the Euro2012 championships. With everything that’s happened, it’s hard to ignore the political overtones to the match. Read more
Germany’s Zew index has suffered its worst decline in 13 years and while it has never been a perfect indicator this level of decline doesn’t bode well for Germany’s future prospects. This is from the Zew Center for Economic Research (with our emphasis):
The ZEW Indicator of Economic Sentiment for Germany has decreased by 27.7 points to a level of minus 16.9 points in June 2012. This is the indicator’s strongest decline since October 1998. The worsening of the situation in the Spanish banking sector and the insecurity about the outcome of the Greek general election, which had been lasting for most of the survey period, are likely to have contributed to the sharp decline of the indicator. Read more
How Charles Dumas of Lombard Street Research gets from this poor performance in Dutch retail sales recently…
Spain’s government has been left looking increasingly desperate/reckless/ineffective by its plans to rescue Bankia, as today’s FT describes:
Mr Rajoy and his government are facing growing domestic criticism over repeated errors of strategy and communication, which that have given an impression that Madrid has run out of ideas on how to handle its financial and economic crises. Read more
Nomura’s Richard Koo is kinda with Christine Lagarde when it comes to the Greek tax problem.
But eurozone bonds (aka eurobonds) are not the solution, he says. Firstly, Greece needs to address its mutual distrust problem with Germany, and persuade the Germans that it will get serious about this tax collection thing: Read more
In the (relative) absence of news, we should share this tweet from @presseurop
Any discussion that involves a discussion of the Euro-system’s TARGET2 mechanism carries a big fat tail-risk that this correspondent’s head will explode. But we’ll run that risk in the interests of readers…
Christian Schwarz and Matthias Klein at Credit Suisse have produced a tome entitled, rhetorically: Will Germany Continue to Pay? Read more
The ‘Greece’ section of the Bundesbank’s latest report on the German economy must be read to be believed (emphasis ours):
Current developments in Greece are extremely worrying. Greece is threatening not to implement the reform and consolidation measures that were agreed in return for the large-scale aid programmes. Read more
Or the Greek-German relationship, told through tourism.
I ask Germans to choose Greece for their summer holidays. Read more
This. Is. Marktverwerfung:
That’s a 0.00 per cent coupon on €5bn of two-year German debt to be sold this Wednesday. Read more
That’s German bund futures, on Wednesday. Fresh record. Read more
The German economy grew five times faster than expected in the first quarter of the year, jumping 0.5 per cent. Admittedly expectations were for only 0.1 per cent growth but still, tis cheering news on a wet London morning – particularly considering the 0.2 per cent hit German GDP took in the last quarter of 2011.
The year on year increase was 1.7 per cent, beating expectations of a 0.8 per cent jump, and the German statistics office said growth was supported by an increase in net trade as exports to outside the eurozone gained. Read more
Netherlands got its (very small) sale away in undramatic fashion following the collapse of its government. From Reuters:
The Netherlands sold 1 billion euros of 3.75 per cent notes maturing in 2014 at an average yield on 0.523 per cent and 995 million euros of 4 per cent bonds maturing in 2037 at an average yield on 2.782 per cent. Read more
There’s an interesting article in Der Spiegel on Tuesday about how Germany has failed to reach its own austerity goals in 2011.
Naturally, this news comes across as a tad hypocritical given Angela Merkel’s own track-record lecturing to the periphery about the importance of austerity. Read more
German MPs have given Chancellor Angela Merkel a sweeping majority in favour of the second Greek bailout package, the FT reports. Opposition Social Democrats and Greens joined Ms Merkel’s Christian Democrats and her Free Democrat junior partners to pass the package by 84 per cent of votes cast, despite Merkel herself remarking that she had sympathy for those who saw Greece as a “bottomless pit”. Merkel’s own coalition votes were enough to deliver a majority, an important symbol amid rising divisions within Ms Merkel’s own cabinet about the merits of a Greek default. Read more
Germany has set itself up for a clash at this weekend’s G20 summit by ruling out an increase in the size of the European Stability Mechanism, the eurozone bailout fund, according to the FT. “The German government’s position has not changed,” a spokesman said. “That means no, it is not necessary.” The IMF and other eurozone governments have pushed for an increase in order to maintain the initiative in fighting Europe’s debt crisis, but German Chancellor Angela Merkel faces domestic opposition to enlarging Germany’s guarantees for the ESM. Read more
Some mildly positive PMI data from Markit this morning (published as the Bank of England’s minutes heaped praise on the readings’ accuracy - see page 3).
Flash Eurozone PMI Composite Output Index at 49.7 (50.4 in January). Second-highest in 6 months Read more
Remember how this eurozone mess largely boils down to a balance of payments problem? The peripherals have current account deficits and the northern countries have surpluses. As the eurozone is a semi-closed/unified economy, it is difficult for the peripherals to pull out of that situation while the northern countries remain determined to be in surplus.
A paper from Deutsche Bank’s Gilles Moec points out some contradictions in this argument — but ultimately, we think, validates it. Read more
Intesa Sanpaolo’s chief executive says he’ll use ECB funds to buy Italian bonds…
BBVA sells the first senior unsecured bond to be issued by a Spanish bank since October… (like Intesa a few weeks ago. Both with unusually short – 18-month – maturities, however) Read more
Deutsche Bank dropped to a fourth-quarter pre-tax loss after the crisis in the eurozone dragged down its trading and investment banking earnings, the FT reports. Germany’s largest bank by assets said revenues for the quarter were down 7 per cent to €6.9bn from the record fourth quarter of 2010. Net income of €186m, down from €605m a year ago, was helped by a €537m tax gain. Quarterly revenues from Deutsche’s private client and asset management division outstripped those from the corporate and investment bank, highlighting the turbulent trading conditions and the bank’s attempt to rebalance towards more stable earnings from retail banking. Revenues from debt sales and trading, normally the engine room of the bank, sank by 35 per cent while equity sales and trading revenues dropped 38 per cent year-on-year in the quarter. The bank’s corporate banking and securities division, which houses sales and trading as well as its advisory businesses, posted a €422m quarterly pre-tax loss, including €380m of charges related to lawsuits. Read more
Turns out that not all the national central banks of the European System of Central Banks (ESCB) are so keen on widening collateral criteria, especially the idea of taking on more bank loans (tweaking the eligibility of credit claims) in exchange for central bank lending.
From Bloomberg on Wednesday (H/T Sean Corrigan): Read more
Maybe not so triumphant, then?